Making Effective Software TCO Calculations

David Chisnall reminds you that it's important for an organization to be able to make its own determination as to the TCO of a system before it switches software. Because open-source and free software advocates differ in opinion when it comes to cost, this article tells you the whole story so you can make a solid financial decision for your business.

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Like this article? We recommend

In a previous article,
"The Cost of Free Software,"
I pointed out that Microsoft was completely objective in its assessment of
Windows’ TCO when compared to that of free software. Unfortunately, a bug
in the way Firefox renders sarcasm caused several readers to take this statement
at face value. In case this hasn’t been fixed yet:

<sarcasm>
Vendors are always completely trustworthy and reliable when quoting TCO, and would never skew statistics or select most-favorable configurations.
</sarcasm>

This being the case, it is important that an organization is able to make its
own determinations as to the TCO of a system before it switches. Open source
advocates are often quick to point out the lower initial cost of their systems.
Detractors point to potentially higher maintenance costs. Free software
advocates focus more on the freedom aspects and the associated lower cost of
migration. All of these are valid points, but none of them tells the whole
story. The TCO of any IT system can be broken into four components:

The purchase price of the system

The cost of switching to the new system

The cost of maintaining the system

The cost of switching away from the system

Each of these must be taken into account when pricing an upgrade.

The Initial Cost

Here free software used to have a clear advantage. At zero cost, it was a
clear winner. These days, many commercial software houses have got in on the act
and provide zero-cost products in areas where there is a free software
competitor. Such companies aim to charge for support, and because they are the
only ones with access to the product’s source code, they are the ones who
can really offer this support.

Of course, the off-the-shelf cost may be only part of the story. Very often
software needs customizing for a particular business use. If you are using free
software then you might have more flexibility here, because you (or a contractor
employed by your company) can modify the code directly, rather than having to
work through a set of exposed interfaces and a bolted-on scripting language.

If you do decide to modify free software, then you either have to maintain a
fork of it in-house or get your changes merged back into the main version. The
first option can be expensive—you will need to pay someone to periodically
merge changes from the main tree into your copy—but it can provide a
competitive advantage in the short term. If you are just using the software, not
building your business around it, then you lose nothing by releasing your
changes, and you gain from the fact other people will help fix bugs in them.
Better yet, if your required changes are useful to others, then you may be able
to share the cost of having them implemented.